How to Value Illiquid Assets for Net Worth
Valuation of illiquid assets
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Community-sourced, written up by For Users
Users typically value illiquid assets at zero until they are converted to cash or marketable stock. Others suggest applying a heavy discount to the latest available pricing or using the cost basis until there is evidence of a change in value.
For specific assets like startup equity or private equity carry, the common advice is to assign a zero value for net worth and budgeting until a liquidity event occurs. Real estate investments require calculating annual returns after all costs, including maintenance and taxes, to compare against opportunity costs.
Professional methods include discounted cash flow analysis, where future cash flows are estimated and discounted with a risk-adjusted rate. Another common approach is adding a spread to the risk-free rate, which can be adjusted based on public indices or expert judgment for creditworthiness and liquidity.
Valuation methods
- Zero valuation Assign a value of zero until you have cash or marketable stock in hand.
- Discounted value Apply a heavy discount, such as a 20% haircut on the latest market price if a liquidity event is near.
- Cost basis Value the asset at its original cost until there is evidence of a different value.
- Discounted cash flow Estimate future cash flows and discount them with a risk-adjusted rate to account for the time value of money.
- Risk-free rate plus spread Add a spread to the risk-free rate, adjusting for creditworthiness and liquidity using public indices or expert judgment.
General Approaches to Valuation
Zero Valuation: Many Users recommend assigning a zero value to illiquid assets for personal net worth calculations until the asset is liquidated. "I would mark it to $0 until you have cash or marketable stock in hand."
Discounted Value: Some Users suggest using a heavily discounted value based on the latest available pricing, especially for assets like private company shares. "If there is a liquidity event on the horizon, then 20% haircut on the latest market price."
Cost Basis: For assets like LP shares in venture funds, valuing them at their cost basis until there is evidence otherwise is a common strategy. "For VC funds, I think I’d consider them to be approx equal to cost basis until I had evidence otherwise."
Specific Illiquid Asset Types
Startup Equity/Options: Users frequently advise valuing startup equity and options at zero until a liquidity event occurs due to high uncertainty. "Equity at a pre-IPO company is zero dollars. Consider a liquidity event a bonus, not a guarantee."
Real Estate: For investment properties, Users suggest calculating annual returns after all costs, including maintenance and taxes, and comparing this to opportunity costs. "You need to calculate your annual return after all costs, including maintenance and taxes."
Carry Compensation: For carry compensation in private equity, Users generally recommend ignoring it for budgeting and net worth until it is realized. "My approach has been to ignore it from a spending / savings perspective."
Professional and Insurer Methods
Discounted Cash Flow (DCF): Insurers commonly use DCF analysis, estimating future cash flows and discounting them with a risk-adjusted rate, sometimes incorporating additional models for credit risk and illiquidity premiums. "One approach is to use discounted cash flow (DCF) analysis... This method takes into account the time value of money and accounts for changes in interest rates."
Risk-Free Rate + Spread: A common method involves adding a spread to the risk-free rate, which can be adjusted based on public indices or expert judgment for creditworthiness and liquidity. "I'd say it's most commonly done as you suggest on a risk free + spread basis."
Are you looking for methods to value a specific type of illiquid asset?
Bottom line
When valuing illiquid assets, Users often consider them as zero until they are converted to cash or marketable stock, with others suggesting discounts based on factors like the latest funding rounds or expert judgment.
Community answers 17
What others in the community said:
predictless
How are they so ignorant?
Unlikely_Mud3771
I'm in my late 40s and on a very good pace for fatFIRE in the next few years -- but as I project forward, I'm not sure how to think about some speculative and illiquid assets I'm holding. My question here is how y'all think about these kinds of assets when viewing your big pictures.
Specifically, I'm holding all of the following -- in terms of initial cost basis, they make up close to 20% of my net worth:
1) Exercised options in a pre-IPO unicorn. This is a company that will almost certainly go public when the window opens. Valuation was up 10X between when my shares were issued and their most recent round of funding... not sure about any dilution that may have occurred.
2) Exerci
Specifically, I'm holding all of the following -- in terms of initial cost basis, they make up close to 20% of my net worth:
1) Exercised options in a pre-IPO unicorn. This is a company that will almost certainly go public when the window opens. Valuation was up 10X between when my shares were issued and their most recent round of funding... not sure about any dilution that may have occurred.
2) Exerci
Googan_28356
29M in HCOL recently promoted to VP within the Ops group at an operationally focused Groton equity firm.
With this promotion I am now eligible for carry allocation in the firms main growth funds. I now find myself with ~$3.5m carry dollars at work across the latest growth fund and an SPV where I’ve been supporting the company in the vehicle heavily for the last 2 years.
Other background - base is currently $200k, bonus $100k and have another LTIP like incentive in a previous fund of $100k. Married and my wife, also 29, makes about $120k.
We have ~$450k in a taxable brokerage, $200k in retirement accounts , $100k in cash and then the LTIP is currently valued at ~$125k.
How do I value wh
With this promotion I am now eligible for carry allocation in the firms main growth funds. I now find myself with ~$3.5m carry dollars at work across the latest growth fund and an SPV where I’ve been supporting the company in the vehicle heavily for the last 2 years.
Other background - base is currently $200k, bonus $100k and have another LTIP like incentive in a previous fund of $100k. Married and my wife, also 29, makes about $120k.
We have ~$450k in a taxable brokerage, $200k in retirement accounts , $100k in cash and then the LTIP is currently valued at ~$125k.
How do I value wh
Mispelled-This
When I left a startup long ago, I exercised all my options. It wasn’t a lot of cash, so why not. After a couple more rounds of funding (with many more shares issued), they did a 1:20 reverse split, and I eventually got back less than ten cents on the dollar when they were acquired.
So, I would mark it to $0 until you have cash or *marketable* stock in hand.
So, I would mark it to $0 until you have cash or *marketable* stock in hand.
denver111797
I’m talking about fully vested equity that you own outright. Particularly in your NW calculations for long term financial planning.
Conventional wisdom would say that for earlier stage companies, any options you exercise you should act like you’ll never see that money again. I generally agree but it’s not worth nothing.
If I exercise stock options, that money didn’t just vaporize even if I don’t count on it coming back to me. It’s worth something to me or else I wouldn’t have exercised.
Do you mark it to zero? Your purchase price? Most recent price for preferred shares in funding rounds? Most recent 409A? Some weighted average of feasible outcomes? How does this change as years go by and
Conventional wisdom would say that for earlier stage companies, any options you exercise you should act like you’ll never see that money again. I generally agree but it’s not worth nothing.
If I exercise stock options, that money didn’t just vaporize even if I don’t count on it coming back to me. It’s worth something to me or else I wouldn’t have exercised.
Do you mark it to zero? Your purchase price? Most recent price for preferred shares in funding rounds? Most recent 409A? Some weighted average of feasible outcomes? How does this change as years go by and
Affectionate-Two-22
Hi everyone,
I'm currently working in valuation and financial modeling, and I want to become proficient in the more specialized areas of valuation that are commonly handled by Big 4 valuation teams and independent valuation firms.
My goal is to learn these topics thoroughly—not just the theory, but also the practical side, including financial models, assumptions, methodologies, Excel workbooks, and how real client reports are prepared.
Here's what I want to master:
* Purchase Price Allocation (ASC 805 / IFRS 3)
* Goodwill Impairment Testing (IAS 36 / ASC 350)
* Trademark & Brand Valuation
* Customer Relationship Valuation (MPEEM)
* Technology / Intellectual Property Valuation (Relief-fro
I'm currently working in valuation and financial modeling, and I want to become proficient in the more specialized areas of valuation that are commonly handled by Big 4 valuation teams and independent valuation firms.
My goal is to learn these topics thoroughly—not just the theory, but also the practical side, including financial models, assumptions, methodologies, Excel workbooks, and how real client reports are prepared.
Here's what I want to master:
* Purchase Price Allocation (ASC 805 / IFRS 3)
* Goodwill Impairment Testing (IAS 36 / ASC 350)
* Trademark & Brand Valuation
* Customer Relationship Valuation (MPEEM)
* Technology / Intellectual Property Valuation (Relief-fro
Pipthagoras
For illiquid asset classes, such as ground rents, which have no observable market value, how do insurers generally approach valuation?
Of course, you could just calculate a spread based on the purchase price and then value the asset at subsequent times by discounting its future cashflows at the prevailing rate of interest plus that spread. However, this would only account for changes in interest rate (and time value), and would not account for changes in liquidity/creditworthiness/etc.
Is it typical for insurers to employ more sophisticated models to value illiquids, or is it generally just done by discounting at risk-free + spread?
Of course, you could just calculate a spread based on the purchase price and then value the asset at subsequent times by discounting its future cashflows at the prevailing rate of interest plus that spread. However, this would only account for changes in interest rate (and time value), and would not account for changes in liquidity/creditworthiness/etc.
Is it typical for insurers to employ more sophisticated models to value illiquids, or is it generally just done by discounting at risk-free + spread?
Successful-Rise5319
I currently have a Property that is rented out and worth around $200k. The tenants pay $1300 a month and are on a year lease, should I attempt to sell the property and funnel the money into stocks? Or pull out home equity, just enough so that the tenants cover the cost of the loan. Just curious to see how you all usually handle hard assets like this, it's been on my mind for a while and I can't help but think that the value can potentially grow better in long term holds like VOO.
BetterSquare593
IBKR is now requesting proof of my liquid net worth, I have the amount that I stated but it is in multiple different accounts and trading platforms and I can only upload 1 file. How can I upload the documents to fulfill their requirements?
titanium_hydra
Does anyone know if I can use the value of the closing price on a foreign exchange and converting it to its usd value for the purposes of calculating the FMV for an illiquid foreign ordinary?
The situation is i would like to do an in kind Roth conversion on some OTC stock that is thinly traded and has a wide spread. Fidelity told me they normally use the closing market price for such cases but in the situation where no shares were traded it would be up to me to calculate the FMV.
My thought is that since the foreign ordinary is an actual share of the foreign company, it is no different than shares in the foreign company on their native exchange, and if the native exchange has much more l
The situation is i would like to do an in kind Roth conversion on some OTC stock that is thinly traded and has a wide spread. Fidelity told me they normally use the closing market price for such cases but in the situation where no shares were traded it would be up to me to calculate the FMV.
My thought is that since the foreign ordinary is an actual share of the foreign company, it is no different than shares in the foreign company on their native exchange, and if the native exchange has much more l
Community member
If there is a liquidity event on the horizon, then 20% haircut on the latest market price.
Community member
For VC funds, I think I’d consider them to be approx equal to cost basis until I had evidence otherwise.
Community member
Equity at a pre-IPO company is zero dollars. Consider a liquidity event a bonus, not a guarantee.
Community member
You need to calculate your annual return after all costs, including maintenance and taxes.
Community member
My approach has been to ignore it from a spending / savings perspective.
Community member
One approach is to use discounted cash flow (DCF) analysis... This method takes into account the time value of money and accounts for changes in interest rates.
Community member
I'd say it's most commonly done as you suggest on a risk free + spread basis.
Related questions
How do you value startup equity before an IPO?
Users advise valuing startup equity and options at zero until a liquidity event occurs due to high uncertainty. You should consider a liquidity event a bonus rather than a guarantee.
Should I include private equity carry in my net worth?
Users generally recommend ignoring carry compensation for budgeting and net worth calculations until it is realized.
What is the zero valuation method for illiquid assets?
The zero valuation method involves assigning a zero value to illiquid assets for personal net worth calculations until the asset is liquidated into cash or marketable stock.
How do insurers value illiquid assets?
Insurers commonly use discounted cash flow analysis, estimating future cash flows and discounting them with a risk-adjusted rate. They may also incorporate additional models for credit risk and illiquidity premiums.
How do you value venture fund LP shares?
A common strategy for LP shares in venture funds is to value them at their cost basis until there is evidence otherwise.
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